RIO DE JANEIRO, BRAZIL (RECENT) (REUTERS ) - They were the big winners in Brazil's economic boom: nearly 40 million people who joined the middle class since 2003 and went on a shopping spree, many of them buying televisions, cars or air conditioners for the first time.

But rising consumer debt defaults have shown that many of these Brazilians -- known here as the "new C Class" -- are in danger of sliding back into poverty as they are failing to pay their bills.

As a result retail sales have plunged since the beginning of the year, undermining hopes for a sector that Brazil's government had long hoped would keep the economy alive.

The massive consumer market in Latin America's biggest country gave policymakers hope that during the slowdown, rate cuts, tax breaks and other consumer stimulus would propel growth even as industrial production wanes.

But their expectations fell short and even the aggressive rate-cutting cycle and avalanche of measures have so far failed to pull the economy out of its lull.

Dorival Dourado, president of Brazil's credit protection agency Boa Vista, said the country's new customers are mostly unaware of how to manage their money and credit cards.

He said financial education programmes are vital to prevent household debts from rising further.

"There were 35 million new consumers over the past six years. It is only natural that the first consequence be a shopping spree, especially with all these incentives the government has been offering, such as tax breaks, etc. So initially this lack of control is normal. Boa Vista along with several partners such as retail businesses and financial institutions, have been working strongly in a programme to provide financial education," he said.

A study released by the Boa Vista credit agency in June revealed that 31 percent of defaulted consumers pointed out credit cards as their biggest enemy.

Many Brazilians who had never used anything but money to shop, were caught by surprise with the huge interest rates banks charge.

Experts say most at risk are those who for the first time have disposable income to consume beyond basic needs.

Felipe Soares, a 26-year-old computer technician, said he often struggles to pay his credit card bills.

"Sometimes I go a bit overboard like everyone else. Sometimes we exaggerate because we want something so badly that we cross the line. But we usually manage to get by with our problems," he said.

The stagnation in Brazil comes as growth in much of the rest of the world also slows. The International Monetary Fund sees growth in the global economy slowing to 3.5 percent this year and has warned that the outlook remains worrisome as Europe's debt crisis lingers.

Squeezed by a strong national currency, Brazilian manufacturers have grown uncompetitive against foreign rivals and are considered one of the main drags on the economy.

Maria Angela Nunes, a certified financial planner, said most families have no savings to cover extra costs or more extreme situations like losing a job.

She considers the government's measures to further motivate consumers a "dangerous path."

"For this Class C (new middle class) it was a huge amount of information and huge access (to credit), with very little guidance. So I believe that we have already observed that consumer default rates are rising and many families are in an extremely critical financial situation and I believe it is time to pull the brakes and think this over. But what we see is happening is that we (government) are starting a new round and telling people, 'come on, lets buy, buying is really good'. I think this is a very dangerous path," she said.

Roughly 55 percent of Brazil's population now belongs to the middle class, nearly the same amount that was classified as poor when former President Luiz Inacio Lula da Silva took office in 2003.

Many analysts have lowered Brazil's growth projections to under 2 percent, while the government insists on 2.5 percent.